Banks checking Cibil rating of promoters for corporate loans

NEW DELHI: Strong credit rating is no longer sufficient for banks to advance loans to corporates. Worried over the rise in bad loans, lenders are combing individual financial reports of promoters and board officials to look for clues or patterns that could ring an alarm bell.

"Bankers want to know the financial discipline of their borrowers. Such data provides critical information on the people who are involved in running the company on a daily basis," said Cibil's managing director Arun Thukral.

A senior official with the country's largest lender, State Bank of India, confirmed that often banks seek such information in order to ascertain if the promoter's personal fortune is linked to company's growth.

"At the end of the day, we are extending credit to the people who are running the show. If their personal integrity is doubtful, then it is not prudent lending," said the SBI official, requesting anonymity.

As of September 2011, the total bad loan for the banks from small business finance was around Rs 13,545 crore.

Thukral said that such reports are often sought by banks in cases of small and medium enterprises, or limited liability partnerships.

Rising non-performing assets or bad loans have become a big concern within the banking industry. As of September 2011, the gross NPA of all commercial banks was Rs 1,19,124 crore, a jump of over Rs 25,000 since March 2011.

The central bank, in its third quarter review of macroeconomics and monetary developments report, had pointed out that risk aversion by banks was one of the factors which led to deceleration in credit growth. RBI has indicated that bank credit this year could slow down to 16% from 18%.

According to BK Batra, DMD, IDBI Bank, such reports help to assess the attitude of promoters. "If he is unable to clear small loans, it shows certain approach," he said. The mid-corporate loan portfolio of the bank, including the SME segment, is over Rs 40,000 crore.

A senior official with Oriental Bank of Commerce said that such analysis helps to know if the promoter or board directors concerned are in some sort of stress, which may not get reflected in the balance sheet of the company.